The North American Free Trade Agreement (NAFTA), which eliminated tariffs on goods traded between the United States, Canada and Mexico, is a political hot potato in today’s presidential primaries in Texas, Ohio, Vermont and Rhode Island.
NAFTA has been blamed by some for the loss of manufacturing jobs in the United States.
On the Democratic side, Sen. Barack Obama has been especially critical of NAFTA and has used the issue to criticize his opponent, Sen. Hillary Clinton. Her husband, Bill Clinton, was the president when NAFTA was adopted.
"I don’t think NAFTA has been good for America, and I never have," Obama said at a recent campaign stop at a factory near Cleveland.
Hillary says she wants to change NAFTA.
"I didn’t have a public position on it (when it was adopted), because I was part of the administration, but when I started running for the Senate, I have been a critic," she said during a recent debate with Obama. "I’ve said it was flawed. I said that it worked in some parts of our country, and I’ve seen the results in Texas. I was in Laredo in the last couple of days. It’s the largest inland port in America now. So clearly, some parts of our country have benefited."
The NAFTA debate has played out intensely in Ohio, a key primary state that will vote tonight. Like Wisconsin, Ohio has seen a decline in its large manufacturing sector in recent years, and many blame NAFTA when manufacturing operations are moved to other countries and manufacturing jobs in the United States are lost.
Meanwhile, business and government officials in Canada also are paying close attention to the U.S. presidential race, and they don’t like to hear U.S. politicians spouting protectionist, anti-trade rhetoric.
That’s important because, despite all of the attention paid to China in recent years, Canada remains Wisconsin’s biggest trading partner. Gov. Jim Doyle (who is a strong Obama supporter) announced recently that exports from Wisconsin to Canada grew by 7.3 percent to $5.8 billion in 2007.
Canadian business and government officials like NAFTA. I found that out while attending a recent tour for foreign journalists hosted by the Ontario government to promote the province’s financial services sector (which, by the way, is thriving. Toronto is the third-largest financial services center in North America, and Ontario officials are determined to improve their global financial services status.)
On several occasions during the tour, the Canadians cited NAFTA as one of several advantages to doing business in Ontario.
"The signing of NAFTA integrated the Canadian and U.S. economies for nearly all businesses purposes," said Janet Ecker, president of the Toronto Financial Services Alliance. "I am always concerned when I hear (U.S. politicians) talking about wanting to pull in, wanting to be isolationist. NAFTA has been one of the great economic success stories both for them and for us."
Canadian officials are hoping U.S. NAFTA rhetoric becomes more realistic after the election.
"I think one thing you see with an election, as the candidates get closer to obtaining the seat of power, their position becomes more nuanced," Ecker said.
Although she acknowledged there has been some pain, Sandra Pupatello, the Ontario Minister of Economic Development and Trade, said NAFTA has been tremendously beneficial for the United States and Canada. U.S. angst over the trade agreement is directed more at Mexico than Canada, she said.
"When Obama has been speaking about NAFTA – I like the guy by the way – the focus tends to be more south than north," Pupatello said.
Canada has experienced tremendous growth under NAFTA, and Pupatello said, "We anticipate that will go on."
Ontario’s economy remains heavily dependent on the auto industry. Ontario has 14 auto assembly plants, and the providence has supplanted Detroit as the top vehicle-producing jurisdiction in North America. Ontario also has more than 450 auto parts manufacturing plants. In all, the auto sector has 130,000 employees in the providence.
The weaker U.S. dollar has hurt Canadian exports, but Canada still relies heavily on the U.S. economy. About 86 percent of Ontario’s exports go to the United States. The daily two-way trade of goods between Ontario and the U.S. in more than $800 million.
"We are certainly a key beneficiary of (NAFTA)," said Hari Panday, president and chief executive officer of ICICI Bank Canada. "For our clients shipping goods to the U.S., Mexico and elsewhere, it helps them grow their businesses."
Canada’s economy took off with its trade agreement with the United States in 1988, said William Robson, president and CEO of the C.D. Howe Institute, a Toronto-based economic think tank. NAFTA was important to Canada, he said, because it didn’t want the United States to make a similar deal with Mexico, leaving the U.S. as a North American trading hub with an advantage over its neighbors. NAFTA allowed Canada to trade with Mexico under the same rules that the United States does.
"NAFTA for Canada was a defensive move," Robson said. "We wanted to avoid a situation where you had a bilateral agreement with the U.S. and Canada and the U.S. and Mexico. (If that happened) the U.S. would have been a uniquely favorable place to invest. We avoided that hub-and-spoke situation."
Canada should try to ease U.S. concerns about NAFTA by reaching out and offering to make adjustments that will make regulations between the countries more consistent, which would improve trade opportunities, Robson said. For example, the two countries should make their automobile regulations more consistent, he said.
"With a little bit of effort on Canada’s part, it has to come from Canada’s side, otherwise it will be seen as the imperialists making demands, there are many things we can do," Robson said. "It seems to me with a little bit of initiative we can stop potential barriers from going up on the border."
Some in Canada have considered a plan to unite the U.S. and Canadian currencies, Robson said. However, that would be a tough sell to convince Canadians to adopt the U.S. financial system, he said.
During the tour, Canadian and business officials also touted the country’s government-funded health care system as an advantage to attracting business.
"(Health care) is one of the most significant cost differences in terms of the labor situation (between the U.S. and Canada)," said Stephen Smit, president and CEO of State Street Canada, a division of Boston-based State Street Corp., a financial services provider with offices all over the world, including 18 in the United States. "It’s a significant benefit to labor costs."
Joanne De Laurentiis, president and CEO of the Investment Funds Institute of Canada, said her country’s health care system, "works well," though she acknowledged some problems with waiting lists.
Smit said that Canada’s taxes are higher than in those in the United States, but he said Canadians feel the price is worth it for universal health care.
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The marginal tax rate is higher here than in the U.S.," he said. "Most Canadians appear to be happy to pay for that social benefit."
However, Robson expressed concern about the aging population putting pressure on the Canadian health care system in the future.
"Our system is not responsive to the market," he said. "People don’t have to pay to receive health care. That’s a problem. There’s no balancing mechanism. Over time, we’re going to struggle to meet the costs of that system."
Andrew Weiland is the managing editor of Small Business Times.
